Jack Reed Presses Fed. Chair Powell For Response To Chevron Overturn: ‘What Position Are We In Now?’

2 months ago

Earlier this month, Sen. Jack Reed (D-RI) questioned Federal Reserve Chair Jerome Powell on interest rates during a Senate Banking Committee hearing.

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Transcript

00:00The senior member of the committee will begin the questioning.

00:02Senator Reed.

00:03Thank you very much, Mr. Chairman.

00:05Former President Trump has indicated that he would propose, if elected, a substantial increase

00:15in tariffs of between 10 and 60 percent, and by doing thus, eliminate the federal income tax.

00:23First, in the question of what would be the impact of tariff increases on prices,

00:29consumers, and the economy?

00:31Thank you, Senator Reed.

00:33So I'm going to say that we go very far out of our way not to comment

00:40on campaign-type information.

00:43We just don't do that.

00:44And we also don't comment on trade policy.

00:46We have really specific and important jobs, and we try to stick to those.

00:51Well, I'm glad I allowed you to establish that principle up front, Mr. Chairman.

00:56But let me opine a bit.

00:59Ten percent increases in tariffs is going to have an effect on prices in the shop aisle.

01:04It's going to increase them, because they'll be passed on likely.

01:07Sixty percent tariff increases are significant.

01:10And in fact, I've been told that to replace the income tax, you would have to raise tariffs

01:15across the board 70 percent to make up for the loss of the income tax,

01:21which would, I think, create huge economic problems.

01:25I respect your impartiality and your neutrality, but the numbers don't seem to add

01:31up to anything that would help the country.

01:34Let me switch to something else that might be more within your line of response.

01:40You said in your opening statement that labor markets appear to be in a better balance.

01:46And that's one of the key factors to judge whether interest rates can be raised.

01:52I must say, I'm concerned a bit that we're not on a very faster track

01:59to decreasing interest rates from the Fed, and because of the better balance you cite.

02:06Could you comment on that, Mr. Chairman?

02:08Sure. So the most recent labor market data do send, to your point, a pretty clear signal

02:16that labor market conditions have cooled considerably compared

02:18to where they were two years ago.

02:20This is no longer an overheated economy.

02:23This is an economy, as I mentioned in my opening remarks, that is more or less back

02:27by most measures to where it was before the pandemic.

02:30And that was a strong labor market, but it was not an overheated labor market.

02:34So I think the upshot of that really is that we are, we're well aware

02:39that we now face two-sided risks and have for some time.

02:44But now, you know, the labor market appears to be fully back in balance.

02:47We know that if we move too quickly, we risk, you know,

02:54unnecessarily hampering economic activity and possibly interfering

02:57with the ongoing expansion.

02:59We know that if we move too slowly, that we may undo the good we've done.

03:04Well, actually, it's the other way.

03:05If we loosen policy too late or too little, we could hurt economic activity.

03:13If we loosen policy too much or too soon,

03:16then we could undermine the progress on inflation.

03:18So we're very much balancing those two risks, and that's really the essence

03:22of what we're thinking about these days.

03:24But the direction seems to be going towards lowering interest rates at some point.

03:29We would hope that might be a wish rather than a direction.

03:33But I think if you look at the last summary of economic projections,

03:37I guess I would say it this way, it doesn't seem likely

03:41that the next policy move would be a rate increase.

03:43We don't take things like that off the table,

03:45but that does not seem the likely direction.

03:47The likely direction does seem to be in as we make more progress in inflation

03:52and as the labor market remains strong,

03:54we begin to loosen policy at the right moment.

03:57Just two weeks ago, the Supreme Court handed down two decisions

04:03that impact every federal regulatory agency, including the Federal Reserve.

04:08They overturned the Chevron case, which had eliminated judicial deference

04:16to agency decision-making for many, many decades.

04:19And they also dramatically extended the statute of limitations

04:22under the Administrative Procedure Act.

04:25What is your judgment is the cumulative effect

04:28of these decisions on the Federal Reserve?

04:30More broadly, what does it mean to the economy

04:33if virtually any regulatory decision the Fed makes can be second-guessed

04:37by a judge, what position are we in now?

04:42So we're, you know, we're as an institution very focused

04:46on reading the actual letter and intent of the law and following it carefully.

04:51This is a strong institutional value that we have.

04:54Those are brand-new decisions that just came down and we're really

04:59in the process of just studying some.

05:00I don't have anything for you on them, but we will, of course,

05:03follow the law as the Supreme Court has read it, because that's their job.

05:09Well, thank you.

05:10And I concur with compliance with the law.

05:12But when you do your analysis, and if it is detrimental to your ability

05:18to regulate the banking of the United States,

05:20I think you have an obligation to make that public.

05:23Thank you, Mr. Chairman.

05:25Thank you, Senator Reid.

Jack Reed Presses Fed. Chair Powell For Response To Chevron Overturn: ‘What Position Are We In Now?’

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